The Federal Housing Administration (FHA) has come up with a new low cost reverse mortgage product which will be known as "HECM Saver". In the HECM Saver program, the upfront mortgage insurance premium (MIP) that will be charged to the borrowers will be 0.01% compared to 2% MIP that is charged on normal HECM product. The product will also have an annual MIP of 1.25%.
Opinion of experts on impact of HECM Saver on market…
The HECM Saver will be rolled out in the coming weeks but no one is sure what sort of impact this program will have on the market. With reverse mortgage volume down by 40% during the first and second quarters of 2010, it is expected that as the upfront MIP will be lowered, the number of reverse mortgages borrowers will increase to some extent.
Mortgage experts hope that HECM Saver will reach borrowers with low or no mortgage balance who normally go for HELOC to satisfy their other financial needs. Senior citizens have always tried to tap their home equity through reverse mortgage, but the upfront costs of the HECM had made things difficult for them. With the coming up of HECM Saver, a large number of seniors will be interested to go for it.
Opinion of borrowers on impact of HECM Saver on market…
According to a poll conducted among borrowers, a large number of respondents have agreed that HECM saver will boost reverse mortgage volume and broaden the mortgage market. However, there were some respondents who were of the opinion that it won't have much impact on the borrowers.
Challenges that reverse mortgage lenders may face…
The HECM Saver will pose challenges to reverse mortgage lenders because they will earn less revenue through each transaction compared to what they received in the traditional HECM product.
Unless the HECM Saver rolls out into the market, it'll be difficult to know how it'll affect the mortgage market and the borrowers. We can just hope for the best.